It is very easy for newcomers to become lost amidst a swarm of hype and confusion surrounding cryptocurrency. A lot of them get so swept up by the thought of quick profit that they rarely take time to step back and analyze a system for what it is. Few take the necessary time and effort required to discern fact from fiction, and will simply accept reality as the people on their left and right see it. True to this tendency, investors looking to put their money into a cryptocurrency have been mistakenly investing in ICO’s – some of which are operating illegally in various jurisdictions, and doing so in a blatant manner.
Even though the differences have been skewed by mass misinformation, cryptocurrencies were historically synonymous for coins within the industry, and no ICO token could claim this title for one simple reason. The minute an organization collects money or other assets from investors to fund development of a common enterprise (the token), and there is an expectation of profit arising from the venture, it is deemed a security in nations with well defined legal framework surrounding the exchange of securities. Once an organization receives this designation, there is little hope for redemption in the path to becoming a cryptocurrency, but some of these securities tokens who were able to abide by all applicable laws in their respective countries of operation may go on to become viable businesses in their own regard.
On the other hand, cryptocurrencies are technically launched as valueless instruments; only backed by trust and community involvement. Cryptocurrency prices are free floating, not pegged to any fiat or commodity, with value instead being dictated by the free market. Cryptocurrencies are not controlled or owned by a single entity, and anyone can participate freely, able to come and go as they please. Some tokens are very restrictive or limited in their usage, and in extreme cases they don’t exist in any form outside of their primary exchange(s).
Groups who ran an ICO to fund token development will never shake their designation as a security, even though sources like CoinMarketCap seem to think so. At time of writing 12 of the top 20 cryptocurrencies listed on CoinMarketCap are actually tokenized securities trying to disguise themselves as legitimate cryptocurrencies, but a simple internet search of their history will uncover the details about their fundraising efforts.
For more information on how to avoid making an uninformed cryptocurrency investment or career decision, be sure to check out the following DNotesEDU articles: